The evidence
20 Christos gave evidence that he arranged for the execution of the power of attorney prior to his departure for his overseas holiday. In paragraph 7 of his affidavit made on 24 October 2001 he said that the original power of attorney was placed with his solicitors "for safe custody". I stated earlier that this is one of the two paragraphs indicating, contrary to Mr Berryman's evidence, that the power of attorney was not held in escrow. While that evidence may not be strictly inconsistent with the proposition that the power of attorney was held in escrow (since a document can be held in escrow and for safe custody), one would have thought that if there was an instruction having the effect that the instrument was to be held in escrow and not just for safe keeping, Christos would have given evidence of that instruction in paragraph 7.
21 Paragraph 8 of the affidavit by Christos was as follows:
"8. I recall that in 1994 I said to my son Donald words in or to the effect of 'I want to give you power of attorney whilst your mother and myself are away overseas in case something should come up whilst we are away requiring my signature'."
22 When the affidavit was read at the beginning of the hearing, there was a contest over the admissibility of this paragraph, the issue being seen at that time as an issue about admitting contemporary parol evidence to assist in the construction of a written instrument. I deferred my ruling on the point. Later, with the Court's leave, Christos supplemented this part of his affidavit with oral evidence. He said that the conversation took place in May 1994, about a week before his departure overseas. He said that when he made the statement set out in paragraph 8, his son replied "Yes".
23 This oral evidence made it clear that the conversation deposed to in paragraph 8 of the affidavit was a conversation that occurred some time after the execution of the power of attorney. Therefore the evidence was tendered to prove a subsequent oral variation of the written instrument, rather than to assist in the construction of the instrument. I have found that a power of attorney by deed may be terminated or varied orally. Christos's evidence is therefore clearly admissible. The question is whether, on their proper construction, the words used by Christos in his conversation with his son constituted a revocation or limitation of his son's general authority under the instrument.
24 The words "I want to give you power of attorney" are curious, given that Christos executed the power of attorney some weeks earlier. However, in my opinion those words should not be construed as a statement of future intention to execute a power of attorney. Christos made his statement when he was about to leave for his holiday, and so it is unlikely that he intended to make another power of attorney before his departure. It is more likely, in my view, that the words "I want to give you power of attorney" were intended to be equivalent to "I have given you power of attorney" (or perhaps, more fully, "I have given you power of attorney because I want you to have authority").
25 Paragraph 8 is the other part of the affidavit which, in my view, discloses an intention on the part of Christos inconsistent with any intention that the power of attorney be held by Mr Berryman's firm in escrow subject to further instructions from Christos. According to paragraph 8, his intention (at least in May 1994) was that his son would be able to use the power of attorney without needing to have recourse to Christos for further specific instructions.
26 Counsel for Christos asked me to infer that the occasion of the conversation deposed to in paragraph 8 was the only occasion upon which Christos informed his son of the existence of the power of attorney, prior to his departure overseas. That is not an inference I am prepared to make, in view of the limited evidence before me. However, whether or not Christos informed his son of the existence of the power of attorney on some other occasion, the statement to which he deposed in paragraph 8 was clearly enough an instruction to his son to use the power of attorney while Christos and his wife were overseas in the event that something should come up requiring the signature of Christos.
27 Counsel for Christos submitted that the statement operated as a variation of the written power of attorney, having the effect of confining the scope of the attorney's authority to the execution of any document that should require signature by Christos while he was overseas on the holiday then contemplated, and causing the power of attorney to come to an end automatically (that is, without any further steps being taken by Christos) when Christos and his wife returned to Australia later in 1994.
28 This issue has given me some difficulty. Christos' words were, as I have said, an instruction by father to son to use the power of attorney for signing documents that should require the father's signature while he was away. To use the language of Tadgell J, they were a direction to act, superimposed upon the mere authority to act conferred by the instrument.
29 It is true that nothing was expressly said to the son to require him to restrict the use of the power of attorney solely to such circumstances. Further, nothing was expressly said to the effect that the power of attorney would be spent by virtue of the return of Christos and his wife to Australia at the end of the holiday. Considered literally and in isolation from the surrounding circumstances, Christos's statement was consistent with an intention that the power of attorney would remain available to be used in a similar way during any future overseas holidays, and also with an intention that it would be available to be used on other occasions in accordance with its general terms, regardless of whether Christos was overseas.
30 But the surrounding circumstances are very significant. This was a father talking to his son, just before the father left on an overseas holiday. He directed his son to use the power of attorney, which he had recently executed, while he was away. The direction was cast across the mere authority expressed in the instrument, and it was a direction limited to the period of the overseas trip. In the circumstances, the direction implied, in my view, that the father's intention was for his son to use the power of attorney while he was away, but not to use it after he returned unless he gave particular authority. I find it implausible in the extreme that Christos would have intended to create a situation in which his son would have general authority in respect of all and any of the affairs of his father, after his father had returned to Australia and was competent to handle those affairs himself. It is consistent with this conclusion that the power of attorney was left with Mr Berryman's firm for safe keeping, rather than being delivered to Donald for general use.
31 It follows from these findings that the actual authority conferred by the power of attorney had been withdrawn by 1996, when Donald executed the loan agreement purportedly as attorney for his father. Christos did not give his son actual authority to execute the loan agreement, or to give security over his property, or to receive the proceeds of the loan, or to repay the loan, or to direct Dr Vickery to pay JJP, or to direct JJP to appropriate Dr Vickery's payment to the loan.
The loan transaction
32 John Pacholski is an experienced finance executive who has held senior positions with Esso Australia Limited, Lend Lease Corporation Limited and Westpac Banking Corporation. He ceased employment with Westpac in about April 1998. He has had considerable experience in the provision of finance in large commercial transactions. He is the sole director and shareholder of JJP, which is the trustee of a Maintenance Trust established for the benefit of the children of his first marriage.
33 Mr Pacholski met Luke Pollard at a time prior to 1995, when they both worked for the Lend Lease group. At that time Mr Pacholski was known by the nickname "Killer". Mr Pollard left Lend Lease before Mr Pacholski, to establish his own business called Luke Pollard Enterprises Pty Ltd ("LPE"). Mr Pacholski and Mr Pollard had reasonably regular meetings afterwards, to discuss commercial and business related issues. In late 1995 Mr Pollard introduced Mr Pacholski to his business associate, Donald. Mr Pacholski only ever met with Donald in the company of Mr Pollard, and he estimates that they would have met on fewer than 12 occasions.
34 Early in March 1996 Mr Pollard telephoned Mr Pacholski to invite him to invest about $50,000 over a period of six months in a property transaction, with the prospect of a high rate of profit. Mr Pacholski indicated that the trust established by him as part of his divorce settlement might be able to make a loan if the transaction was secured. Mr Pollard and Mr Pacholski met on about 10 March 1996. Mr Pollard explained that the property was at Bull Street Newcastle, and was owned by Donald's parents. He said that the project was to take an option over the property, refurbish it and sell it quickly.
35 After further negotiations between Mr Pacholski and Mr Pollard, Mr Pacholski prepared a draft letter of offer of finance on behalf of JJP as trustee of the Maintenance Trust. The draft was dated 21 March 1996 and was directed to LPE.
36 At some time between 21 and 25 March 1996 Mr Pacholski had a conversation with Mr Pollard in which Mr Pollard said:
"LPE isn't able to get a guarantee from Chris Nantsou as security for the loan. Can the Maintenance Trust provide the loan on the same terms to Chris Nantsou?"
37 Mr Pacholski agreed to that proposal. He altered the draft letter of offer by amending the date and addressing it to Christos rather than LPE, and making other consequential changes. The offer was for a loan of $50,000 for a term of six months, repayable with interest.
38 Documentation for the loan transaction was executed on about 25 March 1996. The documentation comprised a caveat on the title to the Bull Street property, a mortgage instrument and the letter of offer of finance signed on behalf of the borrower. In all three documents the borrower was described as "Chris Nantsou" rather than "Christos Nantsou" (the correct name appearing on the title). The caveat and mortgage forms were completed by hand, and the evidence is that the handwriting was Luke Pollard's. Donald signed each of the instruments as borrower/mortgagor, and in each case the following words appeared near his signature: "signed by Don Nantsou under power of attorney dated ….. for Chris Nantsou". The signatures were witnessed by Mr Pollard. The date of the power of attorney was left blank.
39 On 26 March 1996 JJP provided the first drawdown pursuant to the loan agreement, in the sum of $40,000, by bank cheque in favour of Don Nantsou Consultancy. By letter dated 10 September 1996, Donald requested drawdown of the final $10,000, to be deposited into the account of Don Nantsou Real Estate Pty Ltd. The letter claimed that the loan agreement would be concluded, as originally agreed, on 30 September 1996 with no extensions required. JJP provided the additional funds, as directed, on 11 September 1996.
40 JJP wrote to Christos at the address of Donald, on 16 September 1996, setting out the amount required to repay the loan on 30 September 1996 and asking that arrangements be made for payment. The loan was not repaid at that time, and Mr Pacholski on behalf of JJP corresponded with "Chris Nantsou" at Donald's address over the ensuing months. He met with Donald and Mr Pollard on 9 October 1996. Donald explained that the Bull Street property had not been sold, and said that he would arrange for $35,000 of the loan facility to be repaid, asking that the balance of the loan be extended for 90 days to 10 January 1997. Mr Pacholski agreed, and said that the sum of $35,000 was to be paid directly into JJP's bank account on the following day.
41 The sum of $35,000 was deposited into JJP's bank account of 11 October 1996. In fact the money was paid by Dr Vickery, in circumstances that I shall describe. Mr Pacholski was not aware that Dr Vickery made the deposit, and believed that the money had been deposited by Donald on behalf of Christos pursuant to the arrangements made at the meeting on 9 October.
42 On 24 December 1996 Mr Pacholski wrote again to Christos at Donald's address, requesting that the balance of the loan then due on 10 January 1997 be paid directly into JJP's bank account. Mr Pacholski then travelled overseas and returned on 20 January 1997. He found that the balance of the loan had not been repaid, and he then had several telephone conversations with Mr Pollard, who promised to follow up the matter with Donald.
43 Mr Pacholski met with Donald and Mr Pollard on 23 January 1997. Mr Pacholski said: "This loan is now more than 100 days overdue. I need the money now or I'm going to enforce the security." Donald said: "There's a guy in Newcastle that I have been doing some consultancy work for. He owes me a fair amount of money. When I get the money from him, I will repay you straight away." Later on the same day Mr Pacholski received a letter dated 23 January 1997 stating that the balance of the loan would be repaid on 29 January 1997. The letter was expressed to be from "Chris Nantsou" but it was not signed.
44 After several further conversations between Mr Pacholski and Mr Pollard, Mr Pollard phoned Mr Pacholski on 3 February 1997, and said:
"Don doesn't want to delay your repayment until after the funds from his client in Newcastle are cleared, so he's arranging for his client to pay $42,400 which he owes Don into your account. Can you work out what we owe you and give us a cheque for the balance? Make the cheque out to LPN Investments for the balance."
45 On 4 February 1997 the sum of $42,400 was deposited into the bank account of JJP. JJP retained $27,686.80 for repayment of principal and interest, and paid the balance to LPN Investments Pty Ltd as directed by Mr Pollard.
46 The Bull Street property was sold and transferred by Christos on 24 April 1997 for the sum of $122,500. The memorandum of transfer appears to have been signed by Christos himself.
47 All dealings in respect of the loan transaction were conducted between Mr Pacholski on behalf of JJP, and Mr Pollard and Donald purportedly on behalf of the borrower. At no stage during the transaction did Mr Pacholski have any contact with Christos. Indeed, his evidence was that the first time he saw Christos was in court at the final hearing.
48 On about 23 May 1998, Mr Pacholski received a letter from Dr Vickery to JJP dated 15 May 1998. The letter enclosed documentation for the two deposits, which Dr Vickery described as "payment for my 25% share of a building project in Rushcutters Bay (Bayswater Road end) which has been documented by Mr Done Nantsou (the other 25% shareholder) with the residue of 50% share for your company JJP Custodians". The letter said that Dr Vickery had not received any documentation for his share or any receipt for the money, and asked that the situation be rectified. Dr Vickery wrote another letter on 16 May 1998, providing further information about the Rushcutters Bay project. The second letter was received by Mr Pacholski on 21 May 1998. He says this was the first time he became aware of the Rushcutters Bay project.
49 On 25 May 1998 Mr Pacholski wrote letters to Dr Vickery, and Donald and Mr Pollard, denying any knowledge of or involvement in the Rushcutters Bay transaction prior to receiving Dr Vickery's letters. Mr Pollard replied to JJP on 26 May 1998, on the letterhead of LPN Investment Capital Pty Ltd. Mr Pollard's letter said that Dr Vickery was a development partner with Donald for a development at Rushcutters Bay, contributing $43,000 of seed capital. It said that those funds were transferred to JJP "to save time", and the funds were subsequently reinstated to Dr Vickery "at our end". According to the letter, Dr Vickery then elected to apply the $43,000 and an additional $107,000 to take part in an "in option shortfall underwriting" in Carpenter Pacific Resources (this transaction is discussed below). That deal remained current but according to the letter, Dr Vickery was endeavouring to withdraw prematurely and there was a dispute between Dr Vickery and LPN Investment Capital over the matter.
50 Dr Vickery instituted proceedings against Luke Pollard Enterprises Pty Ltd in this Court, No 2356 of 1998.
Dr Vickery's dealings with Donald
51 Dr Vickery is a psychiatrist practising near Newcastle. He also makes business and commercial investments. He has been involved with Donald in various business dealings since about 1995. Those business dealings include the Rushcutters Bay project and an investment in the securities of Carpenter Pacific Resources NL.
52 Dr Vickery became involved in the Rushcutters Bay project when Donald visited him in his surgery on about 10 October 1996. Donald said that he was doing a project in Rushcutters Bay with "Killer from Westpac", and he invited Dr Vickery to become involved for a 25% share, on the basis that Donald would have 25% and Killer would have 50%. Mr Nantsou explained that the project was a block of residential units to be developed on several properties overlooking the harbour at Rushcutters Bay. The properties were for sale by Westpac because the owners could not meet their loan repayments. Mr Nantsou also said that his partner Killer could not be directly involved because he was a top executive with Westpac and there would be a conflict of interest. He insisted that if Dr Vickery became involved, no contact be made with Killer.
53 The proposal was that Dr Vickery would put up $35,000 immediately to fund the acquisition of options over the properties to be acquired, on the basis that there might be some further money needed later. Mr Nantsou said that he would arrange for documentation of the transaction. He said that Dr Vickery's money would be returned as soon as Killer arranged a loan to cover the full acquisition and construction costs through his contacts at Westpac.
54 Dr Vickery agreed to participate and Mr Nantsou told him to deposit $35,000 into the account of JJP, which he specified, immediately. Dr Vickery deposited $35,000 by bank cheque into the account of JJP on 11 October 1996. This was the $35,000 referred to above, treated by JJP as part repayment of its loan to Christos. I note that at this time Mr Pacholski was pressing Donald and Mr Pollard for repayment of the loan, which was overdue.
55 Later in 1996 and for part of 1997 Donald and Dr Vickery were partners with another person in a wholesale vegetable business in the Newcastle area, and so Dr Vickery was regularly in contact with Donald. On one occasion he mentioned to Mr Nantsou that he had not received documentation for the Rushcutters Bay project. Mr Nantsou assured him that the transaction would go ahead but that Killer was working on the development of the Olympic site and was very busy. On another occasion Mr Nantsou mentioned the name "Pacholski". He identified Mr Pacholski as his partner, Killer.
56 According to Dr Vickery, Donald arranged for a meeting with Killer at a restaurant in Sydney late in 1996, but Killer did not attend the meeting because, according to Mr Nantsou, he was too busy with the Olympic site.
57 On about 4 February 1997 Donald visited Dr Vickery at his surgery and gave him a slip of paper headed "Newcastle Permanent" which said that $42,400 was needed on that day. The funds would be repaid at the end of February "by selling some shares". The slip of paper set out some costings for the project, showing estimated costs of $8.4 million or $9.24 million and estimated returns from sales of $11.5 million. It said that documentation would be prepared later. Dr Vickery deposited a bank cheque for $42,400 into JJP's account on 4 February 1997. Before he did so Donald told him that Killer would return his money in several weeks. The deposit of $42,400 was treated by JJP as repayment of the balance of the loan to Christos, in the manner described above. The sum of $27,686.80 was applied to discharge the loan and interest and the surplus was paid over to LPN Investments Pty Ltd.
58 Dr Vickery gave evidence that on 5 February 1997 he rang Westpac and located Mr Pacholski's section of the bank, and left the message for him to call. Dr Vickery said that about one hour later Donald rang him and asked whether Dr Vickery had tried to contact Mr Pacholski, reminding Dr Vickery that he had previously been told not to do so.
59 Over the ensuing months Dr Vickery spoke to Donald and reiterated his request for share documentation for the project. Mr Nantsou told him that there had been a delay with the paperwork but that the transaction would still happen. From early February 1997 onwards Dr Vickery had little to do with Donald, because he understood that Mr Nantsou had gone overseas on holidays. When Mr Nantsou return from holidays Dr Vickery had another conversation with him in which he asked again for his documentation and the return of his money, and Mr Nantsou told him that the transaction was still going through and that the documents were being prepared.
60 From the time of that conversation, which was apparently in the early part of 1997, there is a gap in the evidence until May 1998, when Dr Vickery wrote the two letters to JJP referred to above. Dr Vickery did not give an account of what had happened during that time, or explain in any satisfactory way why he took no action for recovery until May 1998.
61 Mr Pacholski denied being involved in any way with the Rushcutters Bay project, in his personal capacity or as a director of JJP or as an executive employee of Westpac. He agreed that the sums of $35,000 and $42,400 were deposited into the account of JJP, but insisted that he thought those amounts were deposited by Donald on behalf of his father pursuant to the arrangements between them. He denied ever making an arrangement with Dr Vickery, and said he had no recollection of ever receiving a message from Dr Vickery.
62 I see no reason to disbelieve the evidence of either Dr Vickery or Mr Pacholski on any of these matters. Their evidence is not inconsistent, and suggests that they were both the victims of misrepresentations made by Donald.
63 The second transaction involving Dr Vickery and Donald related to Carpenter Pacific Resources NL ("Carpenter"). Part of the evidence about that transaction was given by Dr Vickery in proceeding No 2356 of 1998, in which (as I have said) Dr Vickery sued Luke Pollard Enterprises Pty Ltd in respect of the transaction.
64 The transaction arose out of a conversation between Dr Vickery and Donald early in October 1996, in which Mr Nantsou told Dr Vickery that he should "get involved in" Carpenter. Dr Vickery contacted his stockbroker on about 23 October 1996 and then during the period up to June 1997 he bought and sold various options in Carpenter. On 12 May 1997 he had a conversation with Donald in which Mr Nantsou told him that his partner "cool hand Luke" (a reference to Mr Pollard) would be getting "unredeemed options" for $0.25 in June, and that Dr Vickery could have up to one million if he could pay for them immediately. Dr Vickery said: "I can buy about $100,000 worth and if you can add the $42,000 from the money you owe me then I can take 600,000 shares." According to the evidence of Dr Vickery, Mr Nantsou replied "Graham, I will put in the $43,000 and you can be sure you will get the shares". It is unnecessary, for the purposes of the present case, for me to trace the other components of the transaction, or the outcome of Dr Vickery's action to enforce it.
Dr Vickery's loss
65 Counsel for Christos suggested to Dr Vickery in cross-examination that the sums of $42,000 and $43,000 referred to in the above conversation, the evidence of which was given in Dr Vickery's affidavit in proceeding No 2356 of 1998, were identical with the $42,400 paid by Dr Vickery into the account of JJP as the second instalment of his funding for the Rushcutters Bay project. If that were true, then it would appear that Dr Vickery had been repaid the $42,400 by Donald, and consequently that he had no claim for recovery in respect of that amount in the present proceeding.
66 Dr Vickery firmly rejected that suggestion, saying that the money referred to in his conversation with Mr Nantsou was money owed by Mr Nantsou in respect of some share transactions. He said the money he used for building projects was separate from the money he used for share projects. He produced a document headed "Minutes of discussion with Don, Julie and Graham on 12 May 1995". That document states that "Don" was to repay "GJV" $74,000 for BHP options, Mining Shares, "Nassar" and "Loan".
67 Counsel for Christos said I should reject Dr Vickery's evidence on this point in view of a number of factors:
· the evidence in Dr Vickery's affidavit in the other proceeding fluctuated between the figure of $42,000 and the figure of $43,000, suggesting that the true figure may well have been $42,400;
· the amount said to be owing in the minute produced by Dr Vickery was $74,000, and he gave no evidence of any discussion about repayment of the balance of that amount;
· treating the arrangement with respect to the Carpenter options as one involving repayment of the $42,400 advanced in respect of the Rushcutters Bay project would explain why Dr Vickery did nothing to enforce recovery of his advances in the Rushcutters Bay project from early 1997 until May 1998; and
· the proposition that negotiations for Mr Nantsou to repay $43,000 in May 1997 would relate to some figure other than the $42,400 advanced by Dr Vickery for the Rushcutters Bay project is such a coincidence as to test credulity.
68 It appears from the evidence that Dr Vickery and Donald were quite extensively involved with one another in investment transactions. The minutes of their discussion on 12 May 1995 provide a glimpse of the extent and complexity of their dealings with one another, even before the two transactions under consideration in the present case. The evidence before the Court in the present case is far less than a complete account of their business relationship.
69 Nevertheless, I am not persuaded that I should reject Dr Vickery's categorical evidence that the $43,000 or $42,000 referred to in his conversation with Donald concerning the Carpenter options was a debt arising out of share transactions between them and had nothing to do with the Rushcutters Bay project. Dr Vickery gave his oral evidence in a careful and straightforward fashion that gave me no cause to disbelieve him. The minute produced by Dr Vickery is some evidence that an independent debt existed. It is not implausible that the parties might have identified that component of the $74,000 debt referred to in the minute as the amount owing by Donald to Dr Vickery in May 1997. Weighing up the documentary evidence as best I can, and taking into account my observation of Dr Vickery in the witness box, I have decided to accept his evidence on this point.
70 Counsel for Christos also queried whether Dr Vickery could truly claim to have lost the $35,000 paid to JJP in the first of the two instalments. The evidence includes a copy of an undated letter from Donald to JJP's solicitors, received by them on 15 November 1999. In that letter Mr Nantsou alleges that the amount of $35,000 claimed by Dr Vickery was repaid in full some years earlier, to enable the settlement of some townhouses Dr Vickery was buying in Darby Street, Bar Beach. Dr Vickery agreed in cross-examination that he was involved in the purchase of some townhouses in Darby Street over a two year period from 1995 to 1997 or perhaps 1994 to 1996, and said that the project was managed by a person called Peter Durbin (or some similar name that he could not quite recollect).
71 Christos' solicitors served a notice to produce on Dr Vickery's solicitors on 25 July 2002, requiring production of all correspondence and financial records relating to Dr Vickery's purchases of townhouses in Darby Street. Dr Vickery's solicitors responded on the next day, saying that production of those documents would put Dr Vickery to considerable inconvenience, and questioning the relevance of the documents to the present proceeding. There was no response to that letter before the hearing. Counsel for Christos called upon the notice to produce during his cross-examination of Dr Vickery, and nothing was produced, but counsel for Dr Vickery referred to his instructing solicitor's letter. Counsel for Christos then suggested to Dr Vickery that the financial records for the townhouse project in the possession of Mr Durbin might record a debt owing to Donald of $35,000. Dr Vickery denied the possibility that such a debt might exist. However, he agreed that he had made no attempt to retrieve documents from Mr Durbin in answer to the notice to produce, explaining that he believed the notice to produce was limited to documents in his own possession.
72 On this foundation counsel for Christos submitted that, although the financial records for the townhouse project were in the possession of Mr Durbin, they were within Dr Vickery's control. Since Dr Vickery had not produced any of the financial records in response to the notice to produce, counsel submitted that the Court should infer that those financial records would not assist Dr Vickery's case, and consequently Donald's claim that he had repaid the $35,000 should be accepted.
73 I disagree with this submission. In the first place, it appears from Dr Vickery's oral evidence and his solicitor's response to the notice to produce that there was, at the very least, some uncertainty as to whether the notice to produce required Dr Vickery to recover documents from Mr Durbin. Indeed, it is not clear to me on the skimpy evidence before me that the financial records in question were within Dr Vickery's control. Secondly, although Donald claimed in his letter to have repaid the $35,000, judgment was subsequently entered against him. It is not clear to me whether damages taking into account the sum of $35,000 have been assessed against Donald, but even if there has been no such assessment, one would have expected Mr Nantsou to have filed some evidence in the proceedings if he seriously contended that the $35,000 had been repaid by him. He has not done so.
74 My conclusion is that Dr Vickery has proven, on the balance of probabilities, that he has lost the whole of the two amounts paid by him into JJP's account, that is to say the sums of $35,000 and $42,400.
Christos' state of knowledge regarding the loan transaction and Dr Vickery's payments to JJP
75 Christos gave evidence, which I accept, that:
· to his knowledge and belief his son never had occasion to exercise the authority conferred on him by the power of attorney;
· he did not direct his son to act on his behalf in respect of the loan transaction;
· he never had any contact with JJP, and was not aware that any such company existed until he received a letter dated 30 August 1999 from Dr Vickery's solicitors making the demand which led to his joinder in the present proceeding;
· he knew nothing about the transactions or dealings between Dr Vickery and his son until he was served with the pleadings in the present proceeding;
· he did not know about, nor did he request Dr Vickery to pay, the sums of $35,000 and $42,400 paid by Dr Vickery to JJP; and
· no repairs of any nature were made to the Bull Street property after it was damaged by an earthquake in December 1989, until the time Christos sold it in 1997, and the property was vacant for a period of approximately two years prior to completion of the sale.
76 One of the consequences flowing from these findings is that if (contrary to my findings) there had been a loan agreement binding Christos, it could not have been said that JJP's appropriation of Dr Vickery's payments to the discharge of the loan would have been effective payment of the loan. If, unbeknown to the borrower, a third party makes a payment to the lender and the lender treats the payment as discharging or reducing the loan, the lender can still sue the borrower on the loan agreement despite that payment, in the absence of the borrower's assent to the payment: City Bank of Sydney v McLaughlin (1989) 9 CLR 615, 633; Lucas v Wilkinson (1856) 1 H & N 420 [156 ER 1265]; Re Rowe [1984] 2 KB 483; Smith v Cox [1940] 2 KB 558; Guardian Ocean Cargoes Ltd v Banco do Brazil [1991] 2 Lloyd's R 68, 87-8; cf Hirachand Punamchand v Temple [1911] 2 KB 330; see Mason & Carter at paragraph [846].
Availability of the power of attorney at the time of execution of the loan agreement
77 A question was raised at the hearing as to whether Mr Pacholski of JJP saw the original power of attorney or a photocopy of it at the time of execution of the loan agreement, and whether he made and retained in a photocopy of the power of attorney. I should note at the outset that it has not been suggested, and the evidence does not show, that the copy of the power of attorney was certified in accordance with the provisions of s 163A of the Conveyancing Act.
78 Counsel for Christos submitted that at the time of execution of the loan agreement Mr Pacholski saw neither the original nor a photocopy, and that any photocopy he may have obtained was obtained at a much later time.
79 The evidence of Mr Berryman was that as far as he was aware, the original power of attorney remained in safe keeping in his office from the time of its execution until the time of hearing. The practice in his firm was that if the document was removed from document storage a note would be made of that fact on the firm's computer. A further note would be made when the document was returned into safe custody. A computer printout in respect of the power of attorney showed that there were no dealings with that document during the relevant period. This evidence satisfies me, on the balance of probabilities, that the original power of attorney was not removed from Mr Berryman's office at any relevant time after it was executed.
80 Mr Berryman also gave evidence that at no stage had he received instructions from Christos to show the power of attorney to Dr Vickery or JJP or to make a certified copy of it. He gave oral evidence that to the best of his recollection, he was not asked to provide a copy of the instrument to Christos or Donald. However, he conceded in cross-examination that it was possible that a photocopy of the instrument may have been made and released by someone in his office without his knowledge. For reasons I shall explain, I have reached the view that JJP had a photocopy of the power of attorney at the time of execution of the loan agreement. I infer that a photocopy must have been made at some stage prior to the execution of the loan agreement without Mr Berryman being aware that this had happened. That inference is strictly consistent with Mr Berryman's evidence, although he said he believed such an event was very unlikely.
81 The basis for my finding that JJP had a photocopy of the power of attorney at the time of execution of the loan agreement is that I accept the evidence of Mr Pacholski on that point. Mr Pacholski gave evidence that at about the time of execution of the mortgage, caveat and loan agreement by Donald, he sighted the power of attorney dated 7 April 1994. He said in his affidavit that the document appeared to him to be an original, and that he took a photocopy of it for his records.
82 The copy of the power of attorney exhibited to his affidavit was a copy of only the front of the document. However it is probable, in my view, that the photocopy of the back of the document was omitted from the exhibit through clerical error. On 15 September 2000 JJP's solicitors sent to Dr Vickery's solicitors a bundle of documents which included a photocopy of the front and back of the power of attorney. Mr Pacholski gave evidence that the bundle of documents attached to the solicitors' letter was the bundle produced by him to the solicitors for the purpose of discovery. I infer that the documents enclosed with the letter of 15 September 2000 were JJP's discovery documents, and that before that time, Dr Pacholski had in his possession a photocopy of the front and back pages of the power of attorney.
83 During cross-examination Mr Pacholski was shown the original power of attorney and was unable to identify it as the document shown to him at the time of execution of the loan agreement. By the end of his cross-examination his evidence was that the document supplied at the time of execution of the loan agreement was a two-page photocopy rather than the original single double-sided instrument. But he was adamant that the copy power of attorney was produced to him at the time of execution and that he made a photocopy of it at that time.
84 I accept Mr Pacholski's evidence on this matter. There was nothing in his demeanour in the witness box to cause me to reject his evidence. It is true that his answers were somewhat defensive but in the circumstances, I did not regard that defensiveness as an indication of untruthfulness, evasiveness or prevarication. Much of the cross-examination was designed to raise questions about Mr Pacholski's competence. For example, he was challenged as to whether, in his position as a senior finance executive, he would sign documents without reading any part of them including the attestation provisions, and he was challenged as to whether he reviewed the security documentation in January 1997 when the borrower was in default. Rather than making direct answers to the questions put to him, he frequently answered by justifying his position, pointing out (for example) that he relied on lawyers for various tasks. Given his seniority and his sense that his reputation was stake, I found his tendency to provide justifications to be understandable, rather than evasive. Overall, I found him to be a satisfactory witness whose evidence should be believed.
85 Counsel submitted that I should reject Mr Pacholski's evidence that he firmly recollected receiving a copy of the power of attorney at the time of execution, on several grounds. One was that Mr Pacholski could not remember details about the document such as its colour or size. In my opinion his inability to remember these details did not undermine his evidence of a clear recollection of seeing the document. Counsel also drew attention to the fact that the attestation provisions of the documents signed by Donald referred to his father as "Chris" rather than "Christos". In my view that discrepancy may be explicable on the simple ground that Mr Pollard new Christos as "Chris" rather than "Christos", and does not signify that a copy of the document was unavailable at the time of execution. Similarly, the fact that the attestation provisions did not include the date of the power of attorney is not significant, in my view. The documents were prepared by Mr Pollard, who may simply have omitted the date on the basis that such details could be completed later.
Did the loan agreement bind Dr Vickery as principal?
86 Counsel for Christos submitted that if an agent enters into a contract with the actual authority of his or her principal, the principal is bound and it is unnecessary to inquire into the agent's implied or apparent (ostensible) authority or to consider whether the other contracting party investigated the agent's authority: Perry v Holl (1860) 2 De GF & J 38 [45 ER 536], at 48 [ER 540], per Lord Campbell LC; Hambro v Burnand [1904] 2 KB 10, at 19-20 per Collins MR, 23 per Romer LJ, 25 per Mathew LJ; see also Bowstead and Reynolds, at 405. While these propositions appear to be correct, they are irrelevant. This is because I have found that the power of attorney had been withdrawn before Donald executed the loan agreement in 1996, and Christos was unaware of anything about the loan agreement. Therefore Donald did not have the actual authority of his father to execute the agreement or the accompanying security documents. Since he remained ignorant of the loan transaction and Dr Vickery's dealings with his son until after the loan was repaid, it cannot be said that he adopted and ratified the loan agreement after it was made.
87 Christos may nevertheless have been bound by the loan agreement if his son had his ostensible authority to enter into it. Ostensible authority arises when a principal represents or holds out another person as his agent having authority to enter into the contract in question, or having usual authority to enter into transactions of the same kind as the contract in question. Where the principal has thus clothed the agent with apparent authority, he is bound by a contract entered into by the agent with a third party within the scope of that apparent authority, even if the agent never had any actual authority to make the contract, or his actual authority had been withdrawn, provided that the third party had no notice of the lack of actual authority: see, generally, Bowstead and Reynolds at 385ff.
88 The general law of agency is supplemented, in the case of a power of attorney, by Part 16 of the Conveyancing Act 1919 (NSW). Three sections warrant specific mention, namely ss 163, 163A and 162.
89 Section 163 provides for registration of a power of attorney, and states that no deed executed by the attorney under the power is of any force or validity unless the instrument creating the power has been registered. On the view I take on the question of ostensible authority, it is unnecessary for me to decide upon the precise effect of s 163 on the facts of this case. The matter was not fully argued. However, it appears that the section does not apply to a simple contract such as the loan agreement, and arguably did not apply to the mortgage instrument in the absence of registration.
90 Section 163A deals with proof of powers of attorney, stating that a copy of a power of attorney certified in the manner provided for in the section is evidence against the principal of the execution and contents of the instrument, and is evidence against any other person of the contents of the instrument. The section is not directly applicable here, because the copy of the power of attorney provided to JJP was not a certified copy, but Dr Vickery's counsel calls the section in support of an argument that in the absence of the original instrument or a certified copy, JJP was put on inquiry as to the validity and effect of the power.
91 Section 162 is of particular importance in this case. It is as follows (to the extent relevant):
"162 Termination etc - protection of strangers
(1) Where:
(a) an attorney under a power of attorney does an act within the scope of the power, professing to act on behalf of another,
(b) at the time of the act of the attorney or afterwards, a third person:
(i) acts as a purchaser or incurs an obligation or otherwise acts to his or her detriment in a transaction (with the attorney or with any other person) which depends for its validity or effect on the power not having terminated … at the time of the act of the attorney, …
(c) at the time of the act of the third person he or she does not have notice that, at the time of the act of the attorney, the power had terminated, …
the third person … shall be entitled, as against the principal and the attorney and any other person, to rely on the power notwithstanding any termination of the power before the time of the act of the attorney … in the same manner and to the same extent as if the power had not terminated before the time of the act of the attorney …."
92 In the present case, subparagraph (a) is satisfied with respect to entry into the loan agreement, because Donald entered into it within the scope of the broad words of the power, professing to do so on behalf of his father. At the time when Donald did so, JJP incurred an obligation and otherwise acted to its detriment in a transaction (the loan transaction), and that transaction depended for its validity or effect on the power not having been terminated, since it was purportedly a loan agreement between JJP as lender and Christos as borrower, secured over Christos's property. Therefore subparagraph (b) is satisfied. The question is whether, for the purposes of subparagraph (c), JJP had notice at the time of entry into the loan agreement that Donald's power had been terminated, by virtue of the conversation between father and son some years earlier.
93 Subparagraph 162 (1) (c) uses the word "notice" rather than the word "knowledge". It appears that the third party's claim to uphold a contract made by an agent under a power of attorney that has been terminated will be defeated not only where the third party has actual knowledge of revocation of the power, but also where the circumstances surrounding the use of the power create reasonable grounds for suspicion and therefore reasonable grounds to make further inquiries which, if made by the third party, would have led him to discover the revocation: Collier and Lindsay, at 194. "Notice" in this sense appears to be no different under the section than under the general law of ostensible authority: see Bowstead and Reynolds, at 405-408.
94 Thus, in Mutual Provident Land Investing and Building Society Limited v Macmillan (1889) 14 App Cas 596, Mrs Macmillan executed a power of attorney appointing Mr White to be her attorney and conferring broad authority on him. Mr White executed a conveyance of land belonging to Mrs Macmillan, in favour of Mr Trickett. He covenanted to produce the power of attorney and made a statutory declaration that he had not received any notice of its revocation. However, Mrs Macmillan had married before the execution of the conveyance, and upon her marriage she had ceased to be competent to convey the property, because her interest had passed to her husband under the law of that time. She also gave evidence that she expressly revoked the power of attorney.
95 The statutory law of New South Wales at the time provided that a declaration made by the attorney that he had not received any notice of the revocation of the power would be conclusive proof of non-revocation in favour of a person who accepted a conveyance executed under power, if that person acted bona fide and for valuable consideration and "without notice to himself" of any such revocation.
96 One of the questions put to the jury was whether Mr Trickett accepted the conveyance bona fide and for valuable consideration. The jury answered "We believe Mr Trickett from his conversations with Mr Manning, and from what he knew of Mr White, should have made inquiries as to the validity of the power of attorney before purchasing." The evidence was that Mr Trickett had been informed by a Mr Manning that he did not believe Mr White and would not have taken his declaration. There was contradictory evidence as to whether Mr Manning had his conversation with Mr Trickett before or after completion of the conveyance. The Privy Council held that if the jury believed the evidence that the conversation took place before the conveyance, they were entitled to reach the verdict that they reached.
97 Although the wording of the New South Wales statute has changed over the ensuing years, it is still critically important to determine whether the third party had notice that the power of attorney had been revoked before entering into the transaction with the agent. Therefore Macmillan's case remains authority for the proposition that if in the circumstances the person dealing with the agent had reasonable grounds for suspicion which ought to have led him to make inquiries that would have led to discovery of the revocation, the third party cannot use the section to hold the principal to the contract; nor, one would add, would the principal be bound by his agent's ostensible authority at general law.
98 In the present case I have found that Mr Pacholski was given a photocopy of both sides of the power of attorney before the loan agreement was entered into, and he made a copy of that photocopy for JJP's records. But he did not inspect the original power of attorney or require a certified copy which would have given JJP the protection afforded by s 163A. Mr Pacholski did not search the register to satisfy himself that no instrument of revocation of the power of attorney had been registered under s 163 (3). By the time of the loan transaction, the power of attorney was nearly two years old. The loan transaction was proposed to Mr Pacholski for a project involving the development of a property known by him to be owned by Christos. It was a project that promised JJP a very high return over a short period of time. It would have been a simple matter for him to confirm with Christos that the power of attorney was still on foot and that his son had his authority to borrow on his behalf and to give security over the property.
99 Mr Pacholski was told to alter the loan documents, which he had prepared in favour of LPE, on the basis that LPE was not able to get a guarantee from Christos as security for the loan. He was asked to provide the loan to Christos. It is not necessarily irrational for a borrower to prefer a direct loan to an arrangement in which he guarantees the obligations of someone else. At least with a direct loan, the borrower should know the level of liability at all times and be able to anticipate the time and amount of payment. That may be harder to do when the liability is a guarantee liability for someone else's debt. Nevertheless, in this case there was an oddity in the arrangements. The original proposal was that the borrower be another commercial entity (LPE) guaranteed by Christos, and the change made Christos the principal borrower. On the face of it, the change meant an increase in liability for Christos warranting inquiry, even though a rational explanation might (from Mr Pacholski's point of view) have emerged upon inquiry.
100 There was nothing in the present case equivalent to the specific warning received by Mr Trickett as to the trustworthiness of Mr White in Macmillan's case. However, there is an accumulation of circumstances (mentioned above) which, in my opinion, created reasonable grounds for suspicion and therefore a duty of inquiry on the part of JJP as to whether the power of attorney had been revoked.
101 Instead of making an inquiry, JJP took a risk. Some remarks by Romer LJ in Hambro v Burnand are apposite (although in that case it was found that the agent had actual authority to act on the principal's behalf). His Lordship said (at 23):
"By not inquiring for the written authority, they no doubt ran a certain risk. What was that risk? The agent represents that he has authority by reason of the fact that he signs the policy in the names of his co-insurers. If the plaintiffs do not ask to see his authority, upon what are they relying? They rely - and that is the only risk which they run - upon his representation that he has authority to enter into the contract. How can it be argued that the principals are not liable on the contract when it turns out that, to the extent to which the plaintiffs trusted the agent, they were justified in trusting him, and that, to the extent to which he made a representation of authority, he was justified in making such a representation?"